Somebody remind me -- we're in a recession, right? OK, now somebody remind GameStop (NYSE:GME). Judging from yesterday's Q2 2008 earnings report, it didn't get the memo.

Building off 20% improvement in same-store sales, and with new store openings adding new revenue to the mix, the biggest name in gaming retail posted 35% sales growth and 162% better profits than in last year's Q2. (Kudos to Electronic Arts (NASDAQ:ERTS), Take-Two Interactive (NASDAQ:TTWO), Nintendo (OTC BB: NTDOY.PK), and Konami (NYSE:KNM) for putting out popular software titles to drive those sales.)

Paper chase
It seems that Wall Street failed to get an entirely different memo. Investors shrugged at yesterday's news, leaving GameStop's shares flat. They seemingly failed to notice that the company's performance steamrolled analyst estimates, blowing away the Street's mere doubling of profits-growth prediction like so many CGI baddies in a Gears of War sequel.

Nor does this Game intend to Stop any time soon. Instead, management upped its guidance on full-year earnings. Its 2008 targets now include $2.45 to $2.50 per share in profits on about a 13% improvement in comps, and total sales growth of 24%.

Next year could be a bit slower, with management conservatively projecting "at least 25%" improvement in profits. But "underpromise, overdeliver," y'know? I'd much rather see GameStop deliver a series of upside surprises than get all cocky today, only to disappoint us tomorrow.

Valuation ...
After running the most recent numbers we've got for GameStop, I can't help but call the stock undervalued, even based on its own conservative guidance. Over the 12 months preceding the Q2 news, GameStop generated some $412 million in free cash flow, giving the stock a price-to-free cash flow multiple of 18.

Forget this year's upper-30s earnings growth. If GameStop can achieve next year's promised "at least 25%" pace, or even Wall Street's estimate of 20% long-term growth, the stock is cheap.

... with a caveat
Make that "tentatively cheap." I've got one bone to pick with GameStop's earnings report: the company's continuing failure to include a cash flow statement in its earnings reports.

Late last year, I embarked on a personal crusade to encourage some of my favorite companies to provide this information to their shareholders, rather than making us hunt through the SEC files for the data. Symantec (NASDAQ:SYMC) responded promptly, providing a cash flow statement the very quarter after I pointed out its absence. Applied Materials soon followed. Then American Science & Engineering jumped on board. Most recently, Lifeway Foods anted up.

Now it's GameStop's turn to do the right thing. Yesterday's news was great, but it wasn't perfect. But at least now, GameStop has something to shoot for.

Foolish updates on GameStop's top suppliers:

Symantec is a Motley Fool Inside Value pick. Take-Two Interactive Software and American Science & Engineering are Motley Fool Rule Breakers selections. GameStop, Nintendo, and Electronic Arts are Motley Fool Stock Advisor recommendations.

Fool contributor Rich Smith owns shares of American Science & Engineering. Why do we tell you this? Because The Motley Fool has a disclosure policy.